G.R. Nos.

172045-46
June 16, 2009
Justice Carpio, ponente
COMMISSIONER OF INTERNAL REVENUE,
Petitioner,
Vs.
FIRST EXPRESS PAWNSHOP COMPANY, INC.,
Respondent.
Facts:
On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of
Revenue Region 6 Manila, issued the following assessment notices against First Express
Pawnshop Company, Inc. (respondent):
a. Assessment No. 31-1-98 for deficiency income tax of P20,712.58 with
compromise penalty of P3,000;
b. Assessment No. 31-14-000053-98 for deficiency value-added tax
(VAT) of P601,220.18 with compromise penalty of P16,000;
c. Assessment No. 31-14-000053-98 for deficiency documentary stamp
tax (DST) of P12,328.45 on deposit on subscription with
compromise penalty ofP2,000; and
d. Assessment No. 31-1-000053-98 for deficiency DST of P62,128.87 on
pawn tickets with compromise penalty of P8,500.
Respondent received the assessment notices on 3 January 2002. On 1 February 2002,
respondent filed its written protest on the above assessments. Since petitioner did not act
on the protest during the 180-day period, respondent filed a petition before the CTA on 28
August 2002.
Respondent contended that petitioner did not consider the supporting documents on the
interest expenses and donations which resulted in the deficiency income tax. Respondent
maintained that pawnshops are not lending investors whose services are subject to VAT;
hence it was not liable for deficiency VAT. Respondent also alleged that no deficiency DST
was due because Section 180 of the National Internal Revenue Code (Tax Code) does not
cover any document or transaction which relates to respondent. Respondent also argued
that the issuance of a pawn ticket did not constitute a pledge under Section 195 of the Tax
Code.
In its Answer filed before the CTA, petitioner alleged that the assessment was valid and
correct and the taxpayer had the burden of proof to impugn its validity or correctness.
Petitioner maintained that respondent is subject to 10% VAT based on its gross receipts
pursuant to Republic Act No. 7716, or the Expanded Value-Added Tax Law (EVAT). Petitioner
also cited BIR Ruling No. 221-91 which provides that pawnshop tickets are subject to DST.
On 1 July 2003, respondent paid P27,744.88 as deficiency income tax inclusive of interest.
Issue:
Whether respondent is liable to pay P12,328.45 as DST on deposit on subscription of capital
stock.

Held:
DST is a tax on documents, instruments, loan agreements, and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.
DST is actually an excise tax because it is imposed on the transaction rather than on the
document. DST is also levied on the exercise by persons of certain privileges conferred by
law for the creation, revision, or termination of specific legal relationships through the
execution of specific instruments. The Tax Code provisions on DST relating to shares or
certificates of stock state:
Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every
original issue, whether on organization, reorganization or for any lawful
purpose, of shares of stock by any association, company or corporation, there
shall be collected a documentary stamp tax of Two pesos (P2.00) on each Two
hundred pesos (P200), or fractional part thereof, of the par value, of such
shares of stock: Provided, That in the case of the original issue of shares of
stock without par value the amount of the documentary stamp tax herein
prescribed shall be based upon the actual consideration for the issuance of
such shares of stock: Provided, further, That in the case of stock dividends, on
the actual value represented by each share.
Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales,
Deliveries or Transfer of Due-bills, Certificates of Obligation, or Shares or
Certificates of Stock. - On all sales, or agreements to sell, or memoranda of
sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares
or certificates of stock in any association, company or corporation, or transfer
of such securities by assignment in blank, or by delivery, or by any paper or
agreement, or memorandum or other evidences of transfer or sale whether
entitling the holder in any manner to the benefit of such due-bills, certificates
of obligation or stock, or to secure the future payment of money, or for the
future transfer of any due-bill, certificate of obligation or stock, there shall be
collected a documentary stamp tax of One peso and fifty centavos (P1.50) on
each Two hundred pesos (P200), or fractional part thereof, of the par value of
such due-bill, certificate of obligation or stock: Provided, That only one tax
shall be collected on each sale or transfer of stock or securities from one
person to another, regardless of whether or not a certificate of stock or
obligation is issued, indorsed, or delivered in pursuance of such sale or
transfer: And provided, further, That in the case of stock without par value the
amount of the documentary stamp tax herein prescribed shall be equivalent
to twenty-five percent (25%) of the documentary stamp tax paid upon the
original issue of said stock.
In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The
DST, as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing
shares of stock. In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,
this Court explained that the DST attaches upon acceptance of the stockholders subscription
in the corporations capital stock regardless of actual or constructive delivery of the

certificates of stock. Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal
Revenue, the Court held:
The documentary stamp tax under this provision of the law may be levied
only once, that is upon the original issue of the certificate. The crucial point
therefore, in the case before Us is the proper interpretation of the word issue.
In other words, when is the certificate of stock deemed issued for the purpose
of imposing the documentary stamp tax? Is it at the time the certificates of
stock are printed, at the time they are filled up (in whose name the stocks
represented in the certificate appear as certified by the proper officials of the
corporation), at the time they are released by the corporation, or at the time
they are in the possession (actual or constructive) of the stockholders owning
them?
xxx
Ordinarily, when a corporation issues a certificate of stock (representing the
ownership of stocks in the corporation to fully paid subscription) the
certificate of stock can be utilized for the exercise of the attributes of
ownership over the stocks mentioned on its face. The stocks can be alienated;
the dividends or fruits derived therefrom can be enjoyed, and they can be
conveyed, pledged or encumbered. The certificate as issued by the
corporation, irrespective of whether or not it is in the actual or constructive
possession of the stockholder, is considered issued because it is with value
and hence the documentary stamp tax must be paid as imposed by Section
212 of the National Internal Revenue Code, as amended.

In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda
of sales, deliveries or transfer of shares or certificates of stock in any association, company,
or corporation, or transfer of such securities by assignment in blank, or by delivery, or by
any paper or agreement, or memorandum or other evidences of transfer or sale whether
entitling the holder in any manner to the benefit of such certificates of stock, or to secure
the future payment of money, or for the future transfer of certificates of stock. In Compagnie
Financiere Sucres et Denrees v. Commissioner of Internal Revenue, this Court held that
under Section 176 of the Tax Code, sales to secure the future transfer of due-bills,
certificates of obligation or certificates of stock are subject to documentary stamp tax.
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the
corporate stock documentary stamp tax program. RMO 08-98 states that:
1. All existing corporations shall file the Corporation Stock DST Declaration,
and the DST Return, if applicable when DST is still due on the
subscribed share issued by the corporation, on or before the tenth day
of the month following publication of this Order.
xxx

3. All existing corporations with authorization for increased capital stock

shall file their Corporate Stock DST Declaration, together with the DST
Return, if applicable when DST is due on subscriptions made after the
authorization, on or before the tenth day of the month following the date
of authorization. (Boldfacing supplied)

RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states
that what is being taxed is the privilege of issuing shares of stock, and, therefore, the taxes
accrue at the time the shares are issued. RMC 47-97 also defines issuance as the point in
which the stockholder acquires and may exercise attributes of ownership over the stocks.
As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription
agreement in order for a taxpayer to be liable to pay the DST. A subscription contract is
defined as any contract for the acquisition of unissued stocks in an existing corporation or a
corporation still to be formed. A stock subscription is a contract by which the subscriber
agrees to take a certain number of shares of the capital stock of a corporation, paying for
the same or expressly or impliedly promising to pay for the same.

Based on Rosarios testimony and respondents financial statements as of 1998, there was no
agreement to subscribe to the unissued shares. Here, the deposit on stock subscription
refers to an amount of money received by the corporation as a deposit with the possibility of
applying the same as payment for the future issuance of capital stock. In Commissioner of
Internal Revenue v. Construction Resources of Asia, Inc., we held:
We are firmly convinced that the Government stands to lose nothing in
imposing the documentary stamp tax only on those stock certificates duly
issued, or wherein the stockholders can freely exercise the attributes of
ownership and with value at the time they are originally issued. As regards
those certificates of stocks temporarily subject to suspensive
conditions they shall be liable for said tax only when released from
said conditions, for then and only then shall they truly acquire any
practical value for their owners.

Clearly, the deposit on stock subscription as reflected in respondents Balance Sheet as of

1998 is not a subscription agreement subject to the payment of DST. There is noP800,000
worth of subscribed capital stock that is reflected in respondents GIS. The deposit on stock
subscription is merely an amount of money received by a corporation with a view of applying
the same as payment for additional issuance of shares in the future, an event which may or

may not happen. The person making a deposit on stock subscription does not have the
standing of a stockholder and he is not entitled to dividends, voting rights or other
prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment
of DST on its deposit on subscription for the reason that there is yet no subscription that
creates rights and obligations between the subscriber and the corporation.

GR. No. 180066

July 7, 2009
Commissioner of Internal Revenue, Petitioner
Vs.
Philippine Airlines, Respondent
Facts:
A franchise is a legislative grant to operate a public utility. In the present case, P.D. 1590
granted PAL an option to pay the lower of two alternatives: (a) the basic corporate income
tax based on PALs annual net taxable income computed in accordance with the provisions
of the NIRC or (b) a franchise tax of 2% of gross revenues. Availment of either of these
two alternatives shall exempt the airline from the payment of all other taxes including the
20 percent final withholding tax on bank deposits. On Nov. 5, 1997, PALs AVP-Revenue filed
with the CIR a written request for refund in the amount of P2M, which represents the total
amount of 20% final withholding tax withheld from the respondent by various withholding
agent banks. CTA ruled PAL was not entitled to refund. The CA held that PAL was bound to
pay only either (A) or (B); that Sec. 13 of PD 1590 exempts respondent form paying all other
taxes, duties, royalties and other feeds of any kind. Having chosen to pay its
corporate income tax liability, respondent should now be exempt from paying all other taxes
including the final withholding tax.
Issue: Whether the CA erred on a question of law ruling that the in lieu of all other taxes
provisions in Sec. 13 of PD No. 1590 applies even if there were in fact no taxes paid under
any of subsections (A) and (B) of the said decree.
Held:
Note that the tax liability of PAL under the option it chose (Item a of Sec. 13 of PD 1590) is
to be computed in accordance with the provisions of the NIRC. Taxable income means
the pertinent items of gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for these types of income. Under Sec.
32 of the Tax Code, gross income means income derived from whatever source, including
compensation for services; the conduct of trade or business or the exercise of a profession;
dealings in property; interests; rents; royalties; dividends; annuities; prizes and winnings;
pensions; and a partners distributive share in the net income of a general professional

partnership. Sec. 34 enumerates the allowable deductions; Sec. 35, personal and additional
exemptions.
The definition of gross income is broad enough to include all passive incomes subject to
specific rates or final taxes. However, since these passive incomes are already subject to
different rates and taxed finally at source, they are no longer included in the computation of
gross income, which determines taxable income.
Thus, PALs franchise exempts it from paying any tax other than the option it chooses: either
the basic corporate income tax or the 2% gross revenue tax.